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Drawing on a new World Bank study, Washington Post columnist Charles Lane today notes “a vast reduction in poverty and income inequality worldwide over the past quarter-century” – despite what you might think if you listen to Pope Francis, Bernie Sanders, and other voices prominent in the media.

Specifically, the world’s Gini coefficient — the most commonly used measure of income distribution — has fallen from 0.69 in 1988 to 0.63 in 2011. (A higher Gini coefficient connotes greater inequality, up to a maximum of 1.0.)

That may seem modest until you consider that the estimate’s author, former World Bank economist Branko Milanovic, thinks we may be witnessing the first period of declining global inequality since the Industrial Revolution.

Note that this hopeful figure applies to the world’s population as though every individual lived in one big country. When Milanovic assessed the distribution of income between nations, adjusted for population, the improvement was even more striking: a decline in the Gini coefficient from 0.60 in 1988 to 0.48 in 2014.

The global middle class expanded, as real income went up between 70 percent and 80 percent for those around the world who were already earning at or near the global median, including some 200 million Chinese, 90 million Indians and 30 million people each in Indonesia, Egypt and Brazil.

Those in the bottom third of the global income distribution registered real income gains between 40 percent and 70 percent, Milanovic reports. The share of the world’s population living on $1.25 or less per day — what the World Bank defines as “absolute poverty” — fell from 44 percent to 23 percent.

So maybe this is a result of all the agitation on behalf of a more moral or planned economy? No, says Lane, citing Milanovic:

Did this historic progress, with its overwhelmingly beneficial consequences for millions of the world’s humblest inhabitants, occur because everyone finally adopted “democratic socialism”? Was it due to a conscious, organized effort to construct a “moral economy” as per Vatican standards?

To the contrary: The big story after 1988 is the collapse of communism and the spread of market institutions, albeit imperfect ones, to India, China and Latin America. This was a process mightily abetted by freer flows of international trade and private capital, which were, in turn, promoted by a bipartisan succession of U.S. presidents and Congresses.

The extension of capitalism fueled economic growth, which Milanovic correctly calls “the most powerful tool for reducing global poverty and inequality.”

This is the good news about the world today. Indeed, it’s the most important news about our world. We hear so much about poverty, inequality, gaps, resource depletion, and the like, it’s a wonder any NPR listeners can bear to get out of bed in the morning. But as the economic historian Deirdre McCloskey says, this is the “Great Fact,” the most important fact about our world today – the enormous and unprecedented growth in living standards that began in the western world around 1700. She calls it “a factor of sixteen”: we moderns consume at least 16 times the food, clothing, housing, and education that our ancestors did in London in the 18th century. And this vast increase in wealth that began in northwestern Europe, mostly Britain and the Netherlands, has now spread to most of Europe, the United States, Japan, and increasingly to the rest of the world.

Bernie Sanders is leaving tonight for the Vatican, where he’ll speak at a conference of the Pontifical Academy of Social Sciences on changes in politics, economics, and culture over the past 25 years. Other speakers will include the leftist presidents of Ecuador and Bolivia. The Vatican would do better to invite Branko Milanovic and Deirdre McCloskey, who have a much better understanding of the real changes in our world than do Sanders, Rafael Correa, and Evo Morales.

Economic growth has not eliminated all poverty, and it will never solve all the problems of the human heart. But understanding the enormous increase in world standards of living over the past three centuries and the past 25 years should be a starting point for any discussion of further progress. Neither the Vatican nor the American media do a good job of informing us about the Great Fact.

The just completed visit of Secretary of Defense Ashton Carter to India has generated considerable speculation.  That is especially true in China, where opinion leaders noted not only was this was Carter’s second trip to India during his relatively short tenure as Pentagon chief, but that he cancelled a previously scheduled trip to Beijing so that he could make this latest journey.  That move, they feared, suggested a rather unsubtle tilt against China in favor of one of its potential geostrategic competitors.

The agreement that came from Carter’s visit will do nothing to reassure the Chinese.  Carter and his Indian counterpart, Defense Minister Manohar Parrikar, pledged to increase logistical cooperation in the military arena, especially maritime cooperation.  Although that agreement is still a considerable distance away from constituting a full-fledged military alliance between the two nations, it continues a trend that has emerged over the past decade of ever deepening strategic ties.  And mutual concerns about China’s ambitions appear to be the driving force in the bilateral relationship.

At a minimum, the United States appears to be trying to put in place the building blocks of a containment policy directed against China, if U.S. leaders later decide that such a full-blown policy has become necessary.  On this same trip, Carter made a stop in the Philippines to reassure that country of strong U.S. backing in its South China Sea territorial dispute with China. Apparently previous statements by the Secretary of State and President Obama himself, combined with a buildup of U.S. troops in the island nation were not sufficient evidence of resolve.

And Carter’s sojourn in India must be seen in the larger context of Washington’s efforts to strengthen its long-standing alliances with South Korea and Japan and to forge cooperative military ties with such former adversaries as Vietnam.  Along with Japan, though, India would be the biggest prize as a strategic ally.

Despite the wishes of some Sinophobes in Washington, we are likely to see a more measured response from India.  Delhi has much to lose and little to gain by becoming a cat’s paw ally of the United States against China.  That is especially true if Washington is not willing to sever its close ties with India’s arch-enemy, Pakistan.  Yet as long as U.S. leaders insist on waging a “war on terror” with a major Central Asia/South Asia component, centered in Afghanistan, they will not cut Washington’s supposed Pakistani ally loose.  And as long as that is the case, Indian leaders and the Indian public will view professions of U.S. loyalty to their country’s vital interests with justifiable skepticism.

Moreover, shrewd Indian policymakers may conclude that the best position for their country is one of constructive neutrality in the growing tensions between the United States and China.  Whatever side India would take, it would anger one of those great powers, lose potential benefits, and increase its risk level.  Only if China truly adopted a policy of rogue expansionism is that sober calculation likely to change.  In the meantime, Ash Carter and other American suitors may press their courtship of India, but they are likely to come away disappointed.

People who fly a lot will invariably have a bad experience at the airport, sooner or later. Delays, cancellations, huge lines, and overbooked flights can wear on people, and sometimes individuals take their frustrations out on an airline employee. And, once in a while, the person goes too far and crosses the line into assaulting that employee.

In no airport in America is assaulting an airline employee legal under state law. The laws against simple assault—that is, unwanted physical contact, often without injury—apply just as much at the terminal gate as they do at your local bar or walking down the street. But, as with seemingly every bad thing that happens, someone wants to make a federal case out of it. Literally.

Senator Maria Cantwell (D-WA) introduced an amendment to a bill before the Senate to make the simple assault of an airline employee punishable up to ten years in federal prison. This is a problem for a bunch of reasons, but here are two that stick out.

First, the crime lacks what criminal justice folks call a “nexus” to a federal interest. That is, unlike disrupting a flight while on board a plane—which is regulated by federal law and the Federal Aviation Administration—or interfering with a federal government employee—such as a TSA agent or air marshal—there is no particular reason a simple assault of a private business employee triggers federal involvement. If a ticket agent is spat upon or touched without consent by a would-be traveler, that agent has every right to call the local (or airport) police and file charges if he chooses. For these reasons, the law is duplicative and unnecessary.

Second, the possibility of ten years in prison is too much for contact without injury. The statute that would be amended included an enhanced penalty to protect TSA employees who are charged with keeping America’s skies safe from would-be terrorists. One could argue—indeed, I would—that the original statute includes a penalty too stiff relative to the crime. Most simple assault statutes in the federal code include sentence maximums between six months and one year. It’s hard to understand how an angry person grabbing the arm of a ticket agent walking away from them potentially carries ten times the maximum sentence if that person had instead shoved a member of Congress. (see 18 U.S.C. § 351 (e))

A skeptic might say that, in practice, no one will get ten years for petty actions. Perhaps that’s true, but then why should we make such a sentence possible in the first place?

No one should shove a member of Congress or assault an airline employee, period. Simple assault is a crime already, as well it should be. But as the conversation about mass incarceration and sentencing propriety continues on Capitol Hill, legislators should internalize the lessons learned from years of disproportionate sentencing and overcriminalization.

The federal criminal law should be limited to those crimes that properly fall under federal jurisdiction, demonstrate a particular need that is not being met by local authorities, and, when needed, provide sentences proportionate to the severity of the given crime.  This proposed amendment failed all of these aims.

 

The House Ways and Means Committee is holding hearings on tax reform in advance of major restructuring next year should a Republican win the White House.

Today, Rep. Roger Williams presents his plan to the committee. The congressman’s Jumpstart America legislation is a good plan, but I would make it better in these ways:

  • Individual Income Tax Rates. Williams would reduce the current seven tax rates (10, 15, 25, 28, 33, 35, and 39.6 percent) to four (10, 15, 20, and 30). I would go to two rates (10 and 25), as envisioned in a previous Paul Ryan tax plan.
  • Individual Savings. Williams would cut the top tax rates on dividends and capital gains from 23.8 to 15 percent. That’s great, but I would add Universal Savings Accounts to any tax overhaul, as I’ve proposed and Sen. Flake and Rep. Brat have introduced.
  • Corporate Income Tax Rates. Williams would cut the federal corporate rate from 35 to 20 percent. I would slash it further to Donald Trump’s proposed 15 percent.
  • Corporate Foreign Earnings. Williams would reduce taxes on repatriated foreign earnings. I would scrap worldwide taxation of corporations and go to a territorial system, allowing tax-free repatriation.
  • Estate Tax. Williams would eliminate the estate or death tax. I agree.
  • Depreciation. Williams would scrap the business depreciation system and go to expensing, or immediate write-off, of capital investments. I agree.
  • Payroll Taxes. Williams would cut the federal payroll tax rate by 2 percentage points. Instead, I would allow workers to redirect 6 percentage points of the tax into private Social Security accounts, while cutting traditional benefits. To workers, that would feel like a large tax cut because they would gain ownership of their retirement contributions, which currently disappear from their paychecks into a government black hole.

The current tax code is a mess, and it should be overhauled. We should transition to a low-rate flat tax, and the Williams plan and my improvements would be good first steps.

So kudos to Rep. Williams for putting a specific pro-growth plan on the table. Other members of Congress should follow suit to aid the Ways and Means Committee in drafting legislation.

Americans For Tax Reform provides a useful summary of Williams’ plan. I provide an overview of tax reform options here.

Well, isn’t this a shame:

Brad Fitch, president and CEO of the Congressional Management Foundation, told Bloomberg BNA Feb. 16 that House “Democratic chiefs of staff are freaking out” about finding room in their budget for overtime wages.

It’s not clear whether the Obama administration’s forthcoming edict on overtime will apply to legislative staffers, but House Democratic leadership decided it would be prudent for their members to at least gesture toward the spirit of the controversial rule by preparing for compliance. [BNA Daily Labor Report] Now “the rule is creating administrative headaches” and more:

“We don’t have a set-hour kind of situation here; some kids work 12, 14, 16 hours a day, weekends, and I feel terrible that I cannot afford to give raises to the staff,” Rep. Alcee Hastings (D-Fla.) told Bloomberg BNA Feb. 11.

With $320,000 slashed from members’ representational allowances (MRAs) over the past four years, “I don’t see how we could pay overtime” for the “17 or 18 people that each of us is allowed to have—that’s problematic for me,” added Hastings, a senior member of the House Rules Committee.

Some members fear that an overtime mandate will result in having to send staffers home at 5 p.m., leaving phones unanswered and impairing constituent service. “Most members are of the sentiment that it’s impractical to be paying overtime,” said former Virginia Democratic Rep. Jim Moran, now a lobbyist, who suggests that members choose to close one of their district offices or reduce constituent correspondence to adjust to a smaller staff number.

If only there were some way for the U.S. Congress to influence federal labor law!

[cross-posted, slightly adapted, from Overlawyered]

Climate alarmists seem to be working overtime these days to persuade the public to support legislation to combat dangerous climate change, which they claim will occur unless CO2 emissions are drastically reduced. And after nearly two decades of over-predicting global warming (there has been little to no global warming since the late 1990s), they are getting awfully desperate in their attempts to convince the public that there is an imminent climate catastrophe on the horizon.

The rhetoric-of-choice is good old-fashioned fear mongering. The latest example is a New York Times article by Michelle Innis entitled “Climate-Related Death of Coral Around World Alarms Scientists.” In a nutshell it’s a lot one-sided reporting in making the case that unless climate change is stopped (i.e., fossil fuel use is reduced rapidly), highly important underwater coral ecosystems will be consigned an awful death due to coral bleaching. There’s a substantial literature on coral resilience that somehow was ignored. Surely an oversight!

Coral bleaching is one of the most frequently cited negative consequences projected to result from CO2-induced global warming. It is a characterized by a loss of color in certain reef-building corals that occurs when algal symbionts, or zooxanthellae, living within the host corals are subjected to various stresses (usually higher than normal ocean temperatures) and expelled, resulting in a loss of photosynthetic pigments from the coral colony. If the stress is mild, or short in duration, the affected corals often recover and regain their normal complement of zooxanthellae. However, if the stress is prolonged, or extreme, the corals eventually die, being deprived of their primary food source.

In her article, Innis reports that corals bleached at many locations this year as a result of warmer ocean temperatures associated with El Niño, so therefore if something isn’t done to stop global warming (note to the author: that is impossible), these incredible underwater species will go extinct. 

As noted above, there’s a substantial literature showing that corals are pretty resilient. Consider the recently published work of Guest et al. (2016), who reported on the status of a coral community on a highly disturbed reef site south of mainland Singapore before, during and after a major warming event that occurred throughout the Indian Ocean and Southeast Asia in 2010, leaving in its wake many severely bleached coral reefs. And in so doing, they discovered the following intriguing facts.

First of all, the 13 scientists note that approximately two thirds of the coral colonies bleached; but that “post-bleaching recovery was quite rapid and, importantly, that coral taxa that are usually highly susceptible were relatively unaffected.” Secondly, they note that “there was no significant change in coral taxonomic community structure” as a result of the bleaching. Third on their list of discoveries was the fact that “several factors may have contributed to the overall high resistance of corals at this site, including Symbiodinium affiliation, turbidity and heterotrophy.”

Taken together, all of these observations led the thirteen researchers to ultimately conclude that “turbid shallow reef communities may be remarkably resilient to acute thermal stress.” And they conclude that their results (1) “suggest an under-appreciated resilience in disturbed impacted reef systems” and that (2) “corals that have been classified as losers in the face of climate change may have a greater capacity for adaptation and/or acclimatization than previously supposed.”

The findings of Guest et al. are not unique and many other researchers have reached similar conclusions (see dozens of references in the chapter on Aquatic Life in Idso et al., 2014). As one other example, Guzman and Cortes (2007) studied coral reefs of the eastern Pacific Ocean, which “suffered unprecedented mass mortality at a regional scale as a consequence of the anomalous sea warming during the 1982–1983 El Niño.” At Cocos Island (5°32’N, 87°04’W), in particular, they found in a survey of three representative reefs, which they conducted in 1987, that remaining live coral cover was only 3 percent of what it had been prior to the occurrence of the great El Niño four years earlier (Guzman and Cortes, 1992). Based on this finding and the similar observations of other scientists at other reefs, they predicted “the recovery of the reefs’ framework would take centuries, and recovery of live coral cover, decades.” In 2002, therefore, nearly 20 years after the disastrous coral-killing warming, they returned to see just how prescient they might have been after their initial assessment of the El Niño’s damage, quantifying “the live coral cover and species composition of five reefs, including the three previously assessed in 1987.”

With respect to the subject of thermal tolerance, the most interesting aspect of their study was the occurrence of a second major El Niño between the two assessment periods. In fact, Guzman and Cortes state “the 1997–1998 warming event around Cocos Island was more intense than all previous El Niño events,” noting that temperature anomalies “above 2°C lasted 4 months in 1997–1998 compared to 1 month in 1982–83.” Nevertheless, they report “the coral communities suffered a lower and more selective mortality in 1997–1998, as was also observed in other areas of the eastern Pacific (Glynn et al., 2001; Cortes and Jimenez, 2003; Zapata and Vargas-Angel, 2003),” which is indicative of some type of thermal adaptation following the 1982–83 El Niño.

Corals are much more resilient to the stress of bleaching than many people have supposed, and that is an inconvenient truth for the coralline alarmists.

 

References

Cortes, J. and Jimenez, C. 2003. Corals and coral reefs of the Pacific of Costa Rica: history, research and status. In: Cortes, J. (Ed.) Latin American Coral Reefs. Elsevier, Amsterdam, The Netherlands, pp. 361–385.

Glynn, P.W., Mate, J.L., Baker, A.C. and Calderon, M.O. 2001. Coral bleaching and mortality in Panama and Ecuador during the 1997–1998 El Niño-Southern Oscillation event: Spatial/temporal patterns and comparisons with the 1982–1983 event. Bulletin of Marine Science 69: 79–109.

Guest, J.R., Low, J., Tun, K., Wilson, B., Ng, C., Raingeard, D., Ulstrup, K.E., Tanzil, J.T.I., Todd, P.A., Toh, T.C., McDougald, D., Chou, L.M. and Steinberg, P.D. 2016. Coral community response to bleaching on a highly disturbed Reef. Scientific Reports 6:20717, DOI: 10.1038/srep20717.

On April 6th, the Wall Street Journal published an editorial that merits careful examination: “Jack Lew’s Political Economy”. The Journal correctly points out that the Obama administration’s meddling with regulations and red tape is killing U.S. investment and jobs. The most recent example being the Treasury’s new rules on so-called tax inversions, which burried a merger between Pfizer, Inc. and Allergan PLC.

As the Journal concluded: “This politicization has spread across most of the economy during the Obama years, as regulators rewrite longstanding interpretations of longstanding laws in order to achieve the policy goals they can’t or won’t negotiate with Congress. Telecoms, consumer finance, for-profit education, carbon energy, auto lending, auto-fuel economy, truck emissions, home mortgages, health care and so much more.”

“Capital investment in this recovery has been disappointingly low, and one major reason is political intrusion into every corner of business decision-making. To adapt Mr. Read [Pfizer CEO Ian Read], the only rule is that the rules are whatever the Obama Administration wants them to be. The results have been slow growth, small wage gains, and a growing sense that there is no legal restraint on the political class.”

Washington’s destructive policies have been dubbed “regime uncertainty” in a strand of innovative analyses pioneered by Robert Higgs of the Independent Institute. Regime uncertainty relates to the likelihood that an investor’s private property – namely, the flows of income and services it yields – will be attenuated by government action. As regime uncertainty is elevated, private investment is notched down from where it would have been. This can result in a business-cycle bust and even economic stagnation. I recommend Higgs’ most recent book for evidence on the negative effects of regime uncertainty: Robert Higgs. Taking a Stand: Reflections on Life Liberty, and the Economy. Oakland, CA: The Independent Institute, 2015.

This past weekend, The Economist uploaded and shared a short video to its Facebook page called, “The year of the 1 percent.” The video shows a graph superimposed over the Earth seen from space, while a voice narrates, “2016 is set to be a more unequal world than ever before. For the first time, the richest 1 percent of the population will enjoy a greater share of global wealth than the other 99 percent.” The video has been viewed more than one hundred thousand times.

The Economist’s graph reminded me of another graph, which also shows two lines that eventually cross but tells a very different story. Despite population growth, there are fewer people living in extreme poverty today than ever before:How can both graphs be accurate? Poverty can decline even as inequality rises, as long as the total amount of wealth in the world is growing. To ignore this is to fall prey to the “fixed pie fallacy.” Throughout most of human history, global wealth hardly changed. But thanks to trade and industrialization, wealth has skyrocketed since the 1900s and continues to climb. At the same time, technological advances have also increased human wellbeing in ways not captured by looking at GDP alone. Because the pie is growing, focusing solely on inequality, like The Economist’s video did, makes little sense. Most of us would rather have a relatively small slice of a gigantic pie than the biggest slice of a microscopic pie. In other words, most of us would rather be wealthier in absolute terms, regardless of our relative position. This is why many of us, if given the choice, would choose to be an ordinary person today instead of a member of the upper crust a century ago or a 17th century king

The territorial dispute between China and multiple Southeast Asian countries in the South China Sea (SCS) is the most pressing geopolitical issue in U.S.-China relations. The United States has responded to Chinese island building by increasing its military presence around the SCS and coordinating with friendly countries. However, criticism of the Obama administration’s approach, grounded on the presumption that U.S. efforts to date have been inadequate, calls to mind a set of lyrics from the anti-Vietnam War anthem “Fortunate Son” by Creedence Clearwater Revival:

And when you ask them, ‘How much should we give?’
They only answer More! More! More!”

It is difficult to determine what exactly “more” means given the already high level of U.S. activity in the SCS since the USS Lassen conducted a freedom of navigation operation (FONOP) in late October 2015. Since then, the U.S. Navy has conducted another FONOP in addition to other patrols involving aircraft carrier strike groups. Additionally, Philippine-U.S. military cooperation has reached its highest point since American forces were ejected from the country in 1991. Notable examples of cooperation are the recently finalized agreement for the U.S. military to set up “permanent logistics facilities” at five Filipino air bases, and tens of millions of dollars in military aid to improve the Philippines’ maritime patrol and surveillance capabilities.

Many pundits and experts have responded to this increased American presence and engagement by demanding “more”. A recent article by AEI’s Edward Linczer recommends increasing America’s foreign military financing to friendly SCS countries, and Senator John McCain called for “more than symbolic gestures” in the event that China declares an air defense identification zone in the region. The overwhelming consensus among American SCS watchers is that the United States is not doing enough to stand up to China, which is giving China tacit permission to act aggressively. By doing “more” China will eventually be forced to back down.

Asking for “more” in the SCS is not a long-term solution. Beijing has been willing and able to respond in kind to greater American shows of force or resolve. The “do more” advocates argue that the United States just hasn’t hit China’s breaking point yet, but, given the importance of the SCS for China and the relatively low level of military hardware it has placed in the region thus far, such a breaking point, if it exists, will be difficult to reach. Additionally, if “doing more” triggers an assertive response by China, then regional allies and partners will likely feel more threatened and demand even greater American shows of commitment. This creates a dangerous spiral of increasing threat perceptions and additional armaments in the SCS.

America’s short-term fixation on signaling and posturing in the SCS ignores questions about our long-term goals. Is the United States willing to risk armed conflict with China for the sake of interests that are more pressing to Vietnam and the Philippines? Does “doing more” carry downsides that will make America’s long-term position in the SCS more difficult to maintain? These are the kinds of strategic questions that need to be seriously debated; without such a debate, calls for “more” amount to tactics in search of strategy.

When there is a trade negotiation going on, people often try to bring various other policies into the mix. One way they do this is to argue that if another country wants to trade with the U.S., they should have to change some of the policies we don’t like. One recent example comes from the so-called Panama Papers. This is from the Washington Post: 

The Panama Papers’ detailed revelations of a massive international tax-haven scheme have snowballed this week into a fierce debate among Democrats over President Obama’s trade policies with the tiny Central American nation and again laid bare sharp divisions within the party over such agreements.

Trade critics lambasted the administration as failing to heed their prior warnings and win sufficient financial reforms from Panama before signing a landmark free-trade deal in 2011, missing a chance to disrupt the elaborate financial arrangements disclosed in a massive leak of private data last weekend.

“The Panama Papers just show once again how entirely cynical and meaningless are American presidents’ and corporate boosters’ lavish promises of economic benefits and policy reforms from trade agreements,” said Lori Wallach, director of Public Citizen’s Global Trade Watch. The Panama free-trade deal’s “investor protections and official U.S. stamp of approval made it safer to send dirty money to Panama,” she said.

… 

… Wallach, the consumer advocate, said the Obama administration did not push hard enough. The financial-transparency treaty, she said, “requires someone in the U.S. to know what to ask for. It’s not like in Canada, where a financial transaction is automatically reported.”

She said that the trade talks were “a potential opportunity, and if Panama really wanted that opportunity, the administration should have said, ‘These are the things you must do if you really want it and your government is interested enough to change some of this.’ But they didn’t even ask those things.”

There’s a general problem with this kind of criticism. There are many ways U.S. domestic policies might differ from those of other countries, and going down the road of using our leverage to change other countries’ policies is dangerous. We already use trade agreements to influence other countries’ intellectual property, labor and environmental policies. If we keep going in this direction, you could imagine governments taking aim at a wide range of additional domestic policies. (As an extreme example, trade could be used as leverage to encourage pro-choice abortion policies; or it could be used to encourage pro-life policies).  And you could also imagine other governments with large economies doing something similar. The EU already does this to some extent. If it sees others doing so, China might decide to join in.

All in all, this approach to trade policy creates a mess for trade negotiations and trade liberalization, distracting everyone from their main purpose, and causing conflict rather than promoting economic integration.

As it happens, in the context of the Panama Papers, there is also a more specific criticism: It turns out that the critics may be wrong on the facts. The Washington Post editorial board explains:

Data culled from the documents by the International Consortium of Investigative Journalists, and presented in several charts on the group’s website, show that the Panama-based law firm Mossack Fonseca, which specialized in setting up offshore accounts and shell companies for wealthy people, has been steadily reducing its activity in Panama for about a decade. As it happens, the decline began about the time the Bush administration and Panama began discussing a free-trade pact — and accelerated after the deal took effect during Mr. Obama’s first term.

Specifically, the number of offshore incorporations fell from 4,741 in 2005 to 835 in 2015. Most important, as of last year Mossack Fonseca appeared to have nearly completely ceased incorporating the least transparent form of company — known as “bearer shares” — which often don’t need to register an owner’s name.

This should provide an effective rebuke to the critics here. On the other hand, it is problematic if it suggests this type of trade leverage can accomplish domestic policy change abroad, as it might encourage more such efforts. Much better to let trade agreements focus on free trade, and leave discussions of other issues to a separate forum.

Today, the Library of Law and Liberty is carrying my review of Dale Russakoff’s book, The Prize: Who’s in Charge of America’s Schools?, which explored the impact of Mark Zuckerberg’s $100 million gift to Newark’s district school system. Years later, it had little to show for it. At times The Prize reads like a comedy of errors, but given what was at stake, it was really a tragedy. But it didn’t have to be.

Zuckerberg’s gift was matched by other philanthropists and foundations, but even $200 million wasn’t enough to bring the “transformational” changes that reformers desired. The bureaucracy was just too good at impeding reform and sucking up resources:

The new labor agreement was also pricier than initially anticipated: it consumed nearly half of the $200 million of the philanthropic package. The teachers’ contract itself cost $50 million, including $31 million in back pay to cover the raises that teachers hadn’t received over the previous two years.

The union boss, Joe Del Grosso, made the back pay a condition for even holding the negotiations. “We had an opportunity to get Zuckerberg’s money,” Del Grosso later explained, “Otherwise, it would go to the charter schools. I decided I shouldn’t feed and clothe the enemy.” The contract also included merit bonuses and financial incentives for teachers to switch to a universal pay scale.

On top of that, [Newark Superintendent Cami] Anderson asked for $20 million in “buyout” funds to incentivize low-performing teachers, principals, and support staff to leave; $8.5 million in tuition support for teachers to earn graduate degrees relevant to their subject area; and $15 million for a new contract with the principals’ union (which didn’t actually happen during Anderson’s term because the principals refused to negotiate).

The high cost of the agreement meant eliminating plans to invest in community organizing, early-childhood programs, and vocational programs for Newark’s thousands of recent dropouts, which had been one of [Newark Mayor Cory] Booker’s priorities.

Then, too, the teachers’ contract contained fine print that raised its cost even higher. Teachers received 15 paid sick days and three paid personal days (in a less than year-round job, that is, a school year of 180 days), meaning that the district had to pay for both regular and substitute teachers for up to one out of every 10 school days—a particularly large expense given that at least 560 teachers earned more than $92,000 a year. The seniority pay bumps also remained in place, so the district couldn’t afford the performance incentives that they had wanted to give promising young teachers to persuade them to stay.

The great expense was deemed necessary to get greater flexibility and accountability, but it was never clear how permanent those features would be. Asked if the union would continue the accountability reforms after the contract expired in three years, Del Grosso replied: “Let’s pray there’s another Zuckerberg.”

Four years after Zuckerberg’s announcement on the Oprah Winfrey Show, the reforms had not lived up to expectations. The 2014 state test results showed that proficiency in both math and English had declined in every tested grade since 2011. Moreover, the ACT college admission test, which all high school juniors had taken, revealed that only 2 to 5 percent of non-magnet school students in the district were ready for college. Anderson resigned the following year. By then, Booker had already moved on to the U.S. Senate, and his successor, Democratic Mayor Ras Baraka, was elected largely because of his opposition to the Booker/Anderson reforms. Soon after, [New Jersey Governor Chris] Christie turned his attention to his (ultimately failed) presidential bid.

If anything, Newark’s education reform debacle is further evidence of the wisdom of Professor Jay P. Greene’s advice: Build New, Don’t Reform Old

With the New York primary just days away, a policy fight has erupted on the left regarding the 1994 Clinton Crime Bill.  I have a piece today over at Newsweek on the subject.  Here’s an excerpt:

The Crime Bill maddens today’s BLM activists because it earmarked $7.9 billion in grants to the states for the building of prisons. To be eligible for the funds, states had to meet certain conditions. The idea was to encourage the states to embrace the stricter policies found in the federal system, which had abolished parole and limited good time credits for prisoners, which allow well behaved inmates to earn an earlier release date.

Many states were eager to do just that. During the 1990s, America was building a new prison every week, on average. And as soon as those facilities opened up, they were soon operating beyond their original design capacity.

Many of the prisoners were young minority men, nonviolent drug offenders who were serving mandatory minimum sentences….

Hillary has tried to sound like a reformer, saying, “We need a true national debate about how to reduce our prison population while keeping our communities safe.”  

Such throwaway lines are not nearly enough for BLM activists. For them (and others too), support for the 1994 Crime Bill is the political equivalent of Hillary’s vote to support the Iraq war: It was a key indicator of policy judgment—and the Clintons failed the test.

I also point out that Cato’s 1995 Handbook for Congress called for repealing the Clinton Crime Bill precisely because it would lock up thousands and thousands of people who do not belong there.  We urged policymakers to call off the drug war and to reserve prison space for violent offenders.  Alas, Congress turned away from our policy advice. 

One of Michael Mandelbaum’s tasks in his highly provocative new book, Mission Failure: America and the World in the Post-Cold War Era, is to locate the principal inspiration for American foreign policy debacles over the last quarter century.

He finds it in the American foreign policy establishment that has surrounded him over the last decades during which he has been the Christian A. Herter Professor of American Foreign Policy at the Johns Hopkins School of Advanced International Studies in Washington, DC.

He will be talking about his work at a book forum to be held at noon on April 20 several blocks down Massachusetts Avenue at the Cato Institute. Although Cato has been perhaps the only think tank in the city that has managed to stay out of the foreign policy establishment, members of that establishment might do well to attend (and don’t forget: there is a free lunch afterward). Mandelbaum’s presentation will be followed by comments on the book by Keir Lieber of Georgetown University and Brad Stapleton of Cato.

Assessing the history of American military and foreign policy between 1993 and 2014, Mandelbaum identifies a pattern of nearly perfect failure: policies that proved to be counterproductive and military interventions that failed to achieve their presumed purpose which was to create viable, responsive, and effective governments.

Although, as he points out, the American public as a whole was able to contain its enthusiasm for transforming other countries, the establishment has rarely suggested that regrettable happenings overseas were not the business of the United States or that America was simply not capable of setting things right. That is, it was the establishment, not the general public, that principally applauded such extravagant, self-infatuated (and incorrect) pronouncements as the one Mandelbaum quotes from Secretary of State Hillary Clinton: “American have always risen to the challenges we have faced. It is in our DNA. We do believe there are no limits on what is possible or what can be achieved.”

It certainly seems, however, that there have been two levels of failure. Those of the 20th century generally failed to correct bad situations that had been created by the locals—as in Somalia. Those of the 21st mostly made bad conditions much worse—as in Afghanistan, Iraq, Yemen, Libya, and Pakistan. In the last of these, 74% of Pakistanis have come to view the United States as an enemy even as their government cashes the aid checks of $2 or $3 billion it receives annually from that enemy. As negative foreign policy achievements go, that is quite spectacular. There is thus a difference between failure and abject failure.

In reflecting on the phenomenon, Mandelbaum suggests that one reason the United States serially ventured into disastrous interventions “was that it could.” It had the resources and “no other country or coalition of countries was in a position to stop it.”

In the wake of the Vietnam War, strategist Bernard Brodie wistfully reflected, “One way of keeping people out of trouble is to deny them the means for getting into it.” A third of a century later, that sage admonition continues to resonate.

You can register for the book forum here.

Donald Trump says, “we’ve got to start balancing budgets,” and promises that he is “going to cut spending big league.” Trump provides few specifics, but his impulse is certainly commendable.

Ted Cruz offers a much more detailed plan, which includes abolishing four cabinet departments and a couple dozen agencies and programs. The presidential candidate is right that the “current and projected rates of government growth are unsustainable, irresponsible, and constitutionally indefensible.”

Large spending cuts should be on the agenda when the next president enters office in 2017. Spending cuts would spur economic growth by shifting resources from lower-valued government activities to higher-valued private ones. Cuts would expand freedom by giving people more control over their lives and reducing the regulations that come with spending programs.

What should the next president cut? I have updated a plan at DownsizingGovernment to cut dozens of agencies and programs across the budget. I’ve included cuts to entitlements, business subsidies, aid to the states, and other items. The cuts would not only balance the budget and begin reducing the government’s massive debt, but they would also enhance our civil liberties by dispersing power from Washington.

See the new spending cut plan here.

Great powers usually have client states. Although a sign of influence, the latter often are more trouble than they are worth. North Korea increasingly appears that way for Beijing.

The Chinese-North Korean relationship was oft said to be like lips and teeth, forged in blood during the Korean War. But even then, the relationship was fraught with tension.

Today those look like the “good ol’ days.” There is little doubt that the so-called Democratic People’s Republic of Korea has lost the support of Chinese public opinion.

Academics and analysts outside of government also show little love for China’s one ally, which only takes and never gives. Top officials no longer attempt to disguise their frustration with the North’s behavior.

The Kim regime has returned ill-disguised contempt. Emissaries from the People’s Republic of China came and went as the North Korean leader failed to make even a pretense of listening.

So Se Pyong, Pyongyang’s ambassador to the UN in Geneva and the UN’s Conference on Disarmament, predictably denounced the United States and South Korea. When asked if the North felt pressure from the PRC after President Xi called for dialogue over the Korean “predicament,” So responded: “Whether they are going to do anything, we don’t care. We are going on our own way.”

While even great powers cannot always control their international dependents, few accept being publicly humiliated. Even though China provides the North with the bulk of the latter’s energy and food, Beijing’s counsel is treated with no more respect. The PRC has lost credibility.

Thus, it is in Beijing’s interest to end its business-as-usual treatment of North Korea. However, the United States and its allies, most obviously the Republic of Korea and Japan, should make it easier for China to effectively join America’s anti-Pyongyang coalition.

The PRC is reluctant to impose the kinds of penalties supported by Washington for good reasons, based on its own interests. China does not want millions of refugees running north or violent conflict bursting out to the south. Beijing would lose if reunification turned its buffer into an advanced base for U.S. containment policy. The PRC wants to preserve economic preferences which have been dearly bought.

Beijing abhors instability, a likely outcome of greatly ratcheting up pressure on Pyongyang. As I point out for China-U.S. Focus, “Nationalistic leaders attempting to restore China’s international role certainly do not want to be seen doing America’s bidding.”

The United States needs a different strategy. Along with its friends in the region, Washington should offer to share any humanitarian burden, protect Chinese economic interests, acquiesce to Beijing’s direct involvement in a messy transition, and pledge to withdraw American forces from a reunified peninsula.

Moreover, Washington should offer to negotiate with the North without preconditions, and address issues other than nuclear weapons. Winning North Korean acceptance is less important than satisfying Beijing. 

If China can win Western assurances on the issues of greatest importance, it should act. The primary reason would be to advance the PRC’s interest. The current situation is anything but stable.

If Kim is ever tempted to act on his many threats against the United States, South Korea, or Japan, he might trigger the war that no one wants. Even limited military action might spark a retaliatory spiral. And if full-scale war erupted, Beijing could not expect America to stop short of the Yalu.

Acting responsibly in Korea also would demonstrate China’s maturity and readiness for global leadership. Taking action would help repair the damage done Beijing’s reputation by its ham-handed maneuvers over disputed territorial claims in the Asia-Pacific.

The DPRK might be beyond China’s ability to solve. However, the North’s continuing irresponsible behavior puts a premium on Beijing taking a more active role. The PRC has suffered one too many humiliations at the hands of its supposed client state. It is time for China to restore balance to their relationship.

Principled Republicans have been dismayed by the way this primary season has gone, rightly believing that their party has been hijacked by people having little or no connection with the party or its principles as articulated over the years in party platforms. In this morning’s Wall Street Journal, Kimberley Strassel has a long interview with former Cato board member Eric O’Keefe, head of the Wisconsin Club for Growth, who puts his finger on the heart of the problem.

Pointing to “the party’s constitutional right to operate as a wholly private, autonomous political actor,” and looking ahead to the convention, O’Keefe asks, “Why should Republicans bow down to the results of state-mandated open primaries that allow liberal and independent voters to bum-rush what is supposed to be a private poll?” “There’s nothing that special or even good about the government-run primary process,” he adds, and this year’s process is Exhibit A. While the media focus on the anger in the country—which surely there is, and for good reason—still, no one can tell how much mischief has been done through cross-over, sometimes strategic voting in state-mandated open primaries. When that happens, a party—a private organization, not contemplated by the Constitution’s Framers—loses control of its message and its purpose: to put forward in the general election the candidates that best represent the views of its members.

The hijacking of the primary process is only part of the problem, of course. Campaign finance restrictions, about which O’Keefe has had bitter experience in Wisconsin in the last few years, are an equal or even greater burden on a party’s ability to conduct its affairs and get its message out, but that’s a subject for another day. For the present, O’Keefe is looking ahead to the July convention:

The delegates have been going to conventions for years and treating them like Super Bowl parties because there was nothing else to do. But this year they have the opportunity to practice a great national tradition, to exercise their legal, historical right to defeat a man who opposes most of what they believe in, and instead nominate a candidate who represents them.

If they succeed, and succeed in November as well, perhaps the first order of business should be to work with the states toward restoring the principle that political parties are private entities, not extensions of the government, and how they run their affairs are for their members alone to decide.

Yesterday, The Guardian published a provocative opinion piece titled, “Are Robots Going To Steal Your Job? Probably.” 

At first glance, the author’s pessimism would seem justified. From robotic gardeners and farmers to robotic pizza delivery services, it seems like every day robots make new forays into jobs traditionally done by humans. 

But pause to consider technology in historical perspective. Pessimism about new technologies is not new. In 1918, people decried automobiles for destroying the livery stable business. In the early 1800s, frustrated textile workers known as “Luddites” famously smashed apart mechanized looms. The Guardian author himself admits that his fears echo those of the Luddites: 

This is not a new concern. Since at least as early as the time of the Luddites, in early 19th-century Britain, new technologies have caused fear about the inevitable changes they bring. 

The Luddites and livery stable proprietors were correct to realize that new machines would utterly change their industries, but they failed to appreciate the overall effects of new technologies on human wellbeing. 

Banning mechanized looms would have prevented everyone from enjoying cheaper clothing. Similarly, banning automobiles would have robbed everyone of enjoying modern transportation. 

It is certainly true that technological change makes some jobs obsolete, but it has also made humanity better off in many ways. Importantly, it has led to the creation of new jobs. 

In fact, technological progress tends to create more jobs than it destroys. The new jobs tend to be better, while the eliminated jobs tend to be difficult and dangerous. 

The debate over the precise ways in which robots will affect human employment, productivity, incomes, leisure time, and living standards rages on. Cato’s upcoming forum, “Will a Robot Take Your Job?” will tackle these questions and more. Please consider registering here.

California and New York have approved bills to increase their state minimum wages over time to $15 an hour. Presidential candidates Hillary Clinton and Bernie Sanders favor raising the federal minimum wage. But such mandated increases do more harm than good, and they hurt the exact groups of people that policymakers say that they want to help.

Labor economist Joseph Sabia of San Diego State University summarized the academic evidence on minimum wages in this 2014 bulletin for Cato.

Sabia’s own statistical research with economist Richard Burkhauser “found no evidence that minimum wage increases were effective at reducing overall poverty rates or poverty rates among workers.” And a study by economists David Neumark and William Wascher “found that while some poor workers who kept their jobs after minimum wage increases were lifted out of poverty, others lost their jobs and fell into poverty.”

Sabia said that there are two key reasons why the minimum wage does not alleviate overall poverty the way that supporters believe that it will. The first reason is that minimum wages reduce the work available for low-skill workers:

Many firms respond to minimum wage increases by substituting away from low-skilled labor and toward other inputs. For example, grocery stores may substitute away from cashiers and toward self-checkout systems or toward higher-skilled labor. If some near-poor, low-skilled workers lose their jobs or have their hours cut as a result of minimum wage increases, then their incomes may fall, resulting in a rise in poverty among these households.

The vast majority of credible empirical evidence produced by labor economists … suggests that minimum wage increases reduce low-skilled employment. Estimates of the employment elasticity with respect to the minimum wage for low-skilled individuals generally range from -0.1 to as large as -0.3, suggesting that a 10 percent increase in the minimum wage reduces low-skilled employment by 1 to 3 percent.

The second reason that minimum wages do not alleviate poverty is that few beneficiaries of minimum wage increases live in poor households. This fact surprised me when I first read about it, but that is what the data shows. Sabia notes:

Advocates of minimum wage increases paint a vivid portrait of what they see as the typical minimum wage worker: a working single mother struggling to keep her family above the poverty line. But is this portrait accurate? Are most minimum wage workers poor or near poor?

In fact, relatively few minimum wage workers live in poor households. In a new study, Burkhauser and I examine Census data, and find that workers earning between $7.25 and $10.10 per hour—workers who would be directly affected by [a] proposed federal minimum wage increase—overwhelmingly live in non-poor households. We find that only 13 percent of workers who would be affected live in poor households, while nearly two-thirds live in households with incomes over twice the poverty line, and over 40 percent live in households with incomes over three times the poverty line. Other research suggests that poor single-female headed households make up less than 5 percent of all affected workers.

Sabia concluded his Cato bulletin: “While alleviating poverty is a widely shared goal, raising the minimum wage is unlikely to achieve that end. In reality, it is more likely to result in making many low-skilled workers worse off. The minimum wage fails to reduce net poverty because of its adverse effects on employment and poor ability to target workers living in households below the poverty threshold.”

Economist Milton Friedman said that “one of the great mistakes is to judge policies and programs by their intentions rather than their results.” Alas, that is the mistake that continues to drive the minimum wage debate in the United States.

Further analysis of the minimum wage is available here.

The MQ-9 Predator drone is probably best known as a tool of American foreign policy. Since 2002 the Bush and Obama administrations have used unmanned aircraft such as the predator in missions that have (according to New America) resulted in the deaths of hundreds of civilians and thousands of militants in the ongoing War on Terror.

However, Customs and Border Protection (CBP) has used predator drones in American airspace, albeit with limited success. As my colleague Patrick Eddington pointed out in September last year, CBP has a poor track record when it comes to using drones. At the end of 2014 the Department of Homeland Security’s Inspector General found

Although CBP anticipated increased apprehensions of illegal border crossers, a reduction in border surveillance costs, and improvement in the U.S. Border Patrol’s efficiency, we found little or no evidence that CBP met those program expectations.

In a blunt press release issued last year the Department of Homeland Security’s Inspector General’s office said that it  ”recommends that CBP abandon plans to spend $443 millionmore on additional aircraft and put those funds to better use.”

Two senators recently singled out border patrol drones for special treatment in proposed legislation that would restrict the government’s use of drones.

An amendment to the FAA Reauthorization Act of 2016 proposed by Sens. Rand Paul (R-KY) and Edward Markey (D-MA) would prohibit the government from using drones to “gather evidence or other information pertaining to criminal conduct or conduct in violation of a statute or regulation or for intelligence purposes except to the extent authorized in a warrant.”

The amendment, which can be read below, does make exceptions to this requirement that would allow the government to use drones amid high risk of terrorism and exigent circumstances. It also makes an exception for border patrol:

The 3-mile provision is significant given that CBP is permitted to operate within 100 miles of the border, an area where around two-thirds of Americans (~200 million people) live.

Sens. Paul and Markey’s amendment would improve the FAA authorization bill if passed as written, but as lawmakers continue to grapple with the issues raised by drone technology they shouldn’t forget that flying robots on the border have proven to be inefficient and expensive as well as potentially intrusive.

This week the Washington Post has been publishing commentary on the legal doctrine of jury nullification, which boiled down refers to situations in which a jury returns a “not guilty” verdict in a criminal case even though the accused broke a law, rule, or regulation.  To take a quick example, a jury might acquit a patient for using marijuana to alleviate her symptoms even though federal law does not allow any exceptions.  It’s a controversial subject because lawyers and prosecutors and judges have been taught that jury nullification is totally inappropriate–so it is understandable where they’re coming from.

However, most lawyers are not familiar with the history.  You can’t find references to “jury nullification” around the time of the American Revolution.  That’s because it was considered to be part and parcel of what a jury trial was all about.  If jurors thought the government was treating someone unjustly, they could acquit and restore that person’s liberty.  Jury trials were celebrated–and explicit provisions were put into the Constitution so that the government could not take them away. 

Today, the legal system is hostile to the doctrine of jury nullification–even to the point of punishing people who distribute pamphlets!  Some years ago, Cato published the most comprehensive book on the subject, Jury Nullification: The Evolution of a Doctrine by Texas attorney, Clay Conrad.  I’m glad to see that our author has a piece in the Washington Post series today.

One reason the Post decided to run this series is that there’s a move in New Hampshire to revive the doctrine there.  A jury nullification bill had enough support to pass the General Assembly, though its prospects in the Senate are uncertain.

If you agree that jury nullification is an important check on the power of government, take a moment and share this post and/or related material with all your friends and contacts.  The government wants to keep everyone in the dark on this one.

For additional information, go here and here.

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